NSTAR, Cheryl M. Kimball by jvv13668


									                                  KEEGAN WERLIN                             LLP
                                            A T TO RN E Y S A T L A W
                                         2 6 5 F R A N K L I N S T RE E T
                                B O S T ON , M A S S A CH U SE T TS 0 2 11 0 -31 13    TELECOPIERS:
                                                     ———                              (617) 951-1354
                                               (617) 951-1400                         (617) 951-0586


                                                               September 9, 2009

Susan Leavitt
Department of Energy Resources

Dear Ms. Leavitt:

        I am writing on behalf of NSTAR Electric Company (“NSTAR Electric” or the
“Company”) in response to issues discussed at a public stakeholder meeting on August 26, 2009
at the Department of Energy Resources (“DOER”) regarding DOER’s straw proposal for a solar
carve-out within DOER’s RPS Class I regulations (“RPS Solar Carve-Out”).

        Section 32 of the Green Communities Act (“Section 32”) requires each retail supplier of
electricity to provide a portion of its annual RPS obligation “from new on-site renewable energy
generating sources located in the [C]ommonwealth and having a power production capacity of
not more than 2 megawatts which began commercial operation after December 31, 2007.”
Section 32; G.L. c. 25A, § 11F(g). Section 32 authorizes DOER: (1) to set a minimum
percentage for such an on-site generation carve-out; (2) to set a specific technology for the carve-
out; and (3) to set an alternative compliance payment (“ACP”) rate to stimulate the development
of new on-site renewable energy generating sources. Section 32; G.L. c. 25A, § 11F(g), (h).

        With its straw proposal, DOER has proposed, in particular: (1) a minimum percentage of
0.007 percent in 2010, rising to 1.161 percent in 2020; (2) that such obligations must be met with
solar photovoltaic electricity through the generation and purchase of solar renewable energy
certificates (“S-RECs”); and (3) that the initial minimum solar ACP (“S-ACP”) rate in 2010 be
$700/MWh. Solar PV system owners may sell their S-RECs and retail sellers such as NSTAR
Electric may use the S-RECs to meet their RPS Solar carve-out obligation.

I.     Recent Initiatives Promoting Solar Technology

      The Company supports the Administration’s efforts to promote solar development in the
Commonwealth consistent with Governor Patrick’s stated solar development goals. The
Governor’s target of 250 megawatts (“MW”) of electricity from new solar generation facilities
by 2017 is quite ambitious and numerous programs have been developed to help meet the goal.
As DOER is aware, the Green Communities Act has authorized a number of programs, in
DOER Solar Carve-Out Proposal
September 9, 2009
Page 2 of 6

addition to the RPS program, in an attempt to help reach the Governor’s goals. During the past
few months, the Department of Public Utilities (the “DPU”) has:

       (1)     Finalized regulations governing long-term contracts for the procurement of
               renewable energy by the distribution companies (Order Adopting Regulations,
               D.P.U. 08-88-A (June 12, 2009); 220 C.M.R. 17.00 (Long Term Contracts for
               Renewable Energy));

       (2)     Finalized regulations governing net metering (Order Adopting Final Regulations,
               D.P.U. 08-75-A (June 26, 2009); 220 C.M.R. 18.00 (Net Metering); Order
               Adopting Model Net Metering Tariff, D.P.U. 09-03-A (August 20, 2009)); and

       (3)     Considered (or is currently considering) proposals from Western Massachusetts
               Electric Company, National Grid, and Unitil to construct distribution company-
               owned solar facilities.

        Discussion between electric distribution companies and DOER are ongoing with regard
to the parameters of renewable energy procurement through long-term contracts. In addition,
DOER and the Attorney General have proposed a “pooling” concept, which would focus on
distribution company participation in the construction and operation of solar generating facilities.
Each of these DOER initiatives is, in part, designed to help achieve the Governor’s target for
solar generation. As such, these initiatives should be taken into account when developing a
target level for S-RECs.

       Currently, DOER’s straw proposal does not fully and properly credit potential outcomes
from these various initiatives. For example, on page 9 of DOER’s August 26th straw proposal,
DOER assumes that total utility ownership and federal stimulus installations of solar generation
does not exceed 23 MW, and that the Commonwealth Solar Rebate Program does not increase
above 24 MW after 2011. In addition, DOER assumes that there will be no amount of solar
generation procured through contract or installed independently of government-initiated
programs. It therefore appears that the size of the RPS Solar Carve Out in 2017 is designed to
make up the difference between the Governor’s 250 MW goal and the assumed 47 MW, without
any other growth in solar generation. The impact of other solar generation, such as utility
ownership, should be recognized. In addition, growing the RPS Solar Carve Out by 257%, from
203 MW to 524 MW, in the three years after the Governor’s goal is met is without merit.

        In light of the variety of programs and initiatives that already exist to encourage the
development of the solar industry, DOER should reconsider its determination that the distributed
renewable energy generation carve-out from Section 32 be attained solely through the use of
solar PV technologies. Solar technology is an expensive technology and DOER’s determination
will create significant impacts on customers that are not justified in light of the variety of other
programs already in place in Massachusetts that will encourage the growth of the solar industry.
At the very least, DOER should consider in more detail how the various programs and initiatives

DOER Solar Carve-Out Proposal
September 9, 2009
Page 3 of 6

interact and incorporate those impacts into its analysis going forward. In that way, the impact on
customers can be minimized.

II.    The Proposed Minimum Percentage and Proposed S-ACP

        DOER’s straw proposal starts with a carve-out percentage of 0.007 percent in 2010 and
increases to 1.161 percent in 2020. In addition, DOER proposes an S-ACP of $700/MWh
($0.70/kWh) in 2010 and declining to $311/MWh ($0.31/kWh) in 2020. The Company believes
that the percentages required and the initial S-ACP of $700/MWh is too high and would unfairly
burden customers. In fact, several states in the Northeast and mid-Atlantic region have instituted
solar requirements that have alternative compliance payments that are much lower than what
DOER is proposing. For example, Maryland’s program has somewhat higher percentage
requirements that are being met with a significantly lower ACP. The Maryland ACP is $400 in
2010, $350 in 2011 and decreasing by $50 bi-annually.

       NSTAR Electric has made some rough calculations set forth in the following table, about
the magnitude of the costs to customers over time created by DOER’s straw proposal.

       Year             RPS Solar         S-ACP Rate           Estimated           Obligation
                        Minimum            ($/MWh)              NSTAR
                      Standard (%)                            Distribution
                                                              Service Load
       2010                0.007              $700             21,650,000          $1,060,850
       2011                0.009              $700             21,650,000          $1,363,950
       2012                0.036              $650             21,650,000          $5,066,100
       2013                0.080              $650             21,650,000         $11,258,000
       2014                0.139              $585             21,650,000         $17,604,698
       2015                0.216              $527             21,650,000         $24,644,628
       2016                0.317              $474             21,650,000         $32,530,857
       2017                0.450              $426             21,650,000         $41,503,050
       2018                0.625              $384             21,650,000         $51,960,000
       2019                0.856              $345             21,650,000         $63,936,780
       2020                1.161              $311             21,650,000         $78,171,872

        NSTAR Electric believes that the adverse impact on customers of these costs is
significant and excessive. If an S-ACP rate similar to the Maryland model were adopted,
customers would save over 50% of the above-calculated costs.

III.   Long-Term Contracts

       DOER proposes that NSTAR Electric and its fellow retail sellers procure approximately
75 percent of its projected RPS Solar carve-out compliance obligation through long term
contracts. As DOER is aware and as noted above, the DPU recently finalized regulations

DOER Solar Carve-Out Proposal
September 9, 2009
Page 4 of 6

governing long-term contracts pursuant to Section 83 of the Green Communities Act (“Section
83”). Order Adopting Regulations, D.P.U. 08-88-A (June 12, 2009); 220 C.M.R. 17.00 (Long
Term Contracts for Renewable Energy). Pursuant to those regulations, distribution companies
“shall not be obligated to enter into long-term contracts under [Section 83] that would, in the
aggregate, exceed 3% of total annual energy demand . . . .” 220 C.M.R. 17.08(5). Where a
distribution company has entered into long-term contracts consistent with Section 83, “it shall
not be required by regulation or order to enter into contracts with terms of more than three years
to meet its annual RPS requirements, pursuant to [G.L. c. 25A, § 11F], unless the Department
finds that such contracts are in the best interests of customers.” 220 C.M.R. 17.08(4).

       Accordingly, NSTAR Electric is opposed to any long-term contracting obligation beyond
what is already contained in Section 83 and the DPU’s regulations governing long-term
contracts. Any long-term contracts for solar energy procurement should be consistent with
Section 83 and DPU regulations. In particular, any long-term contracts for solar energy should
be carved out of the 3 percent cap set forth in Section 83 and such contracts should be subject to
regulatory approval. Further, long term contracting should be consistent with all legislatively
mandated requirements of Section 83.

IV.    Treatment of S-RECs

       A.      Source of S-RECs

        DOER’s straw proposal calculates the expected solar output from the RPS Solar Carve-
Out program without including any solar output generated by distribution company-owned solar
generating facilities. DOER cites no statutory authority for such an approach, but rather focuses
on its policy to support the growth of the solar industry in Massachusetts.

         NSTAR Electric believes strongly that any RECs generated by solar generation facilities
owned by the Company should be explicitly eligible to qualify as S-RECs for purposes of
compliance with its obligations under DOER’s RPS Solar Carve-Out regulations. According to
DOER, the purpose of the RPS Solar Carve-Out is to, among other goals, spur and sustain long-
term growth in the solar industry. If a distribution company constructs solar PV generation
facilities, the economic benefit to the solar industry is at least as great as when any other entity
constructs a solar PV facility. If utility investments are ascribed a lower value than others in the
market it would be difficult for utilities to justify investment which is at odds with the state
policy. Thus, NSTAR Electric proposes that DOER’s RPS Solar Carve-Out regulations
explicitly recognize that any S-RECs generated by Company-owned solar generation facilities
qualify as S-RECs for purposes of compliance.

       B.      Use of S-RECs

        NSTAR Electric further believes that DOER’s RPS Solar Carve-Out regulations should
allow NSTAR Electric and the other retail sellers to have the flexibility to retain any S-RECs in
its possession to either meet its RPS Solar Carve-Out compliance obligations, or sell the S-RECs

DOER Solar Carve-Out Proposal
September 9, 2009
Page 5 of 6

and credit any proceeds to its basic service customers. See 220 C.M.R. 17.06 (Use of Energy
and RECs Obtained Through Long-Term Contracts).1           Such flexibility is reasonable and
consistent with the Company’s choices under Section 83 and the DPU’s regulations governing
long-term contracts.

V.     Implementation Date

        DOER proposes to implement the RPS Solar Carve-Out program in 2010. NSTAR
Electric suggests that the implementation date instead occur in 2011. An implementation date of
2011 would allow the Company and regulators alike to more fully understand the costs and
impacts of the variety of already existing programs intended to spur growth in the solar industry.
In light of the fact that solar technology is an expensive energy technology, the Company
believes that it would be most prudent to delay implementation. Given the wide variety of
programs and initiatives already in place, DOER may find that there is ultimately no need to
burden ratepayers with the additional costs that will occur in the event DOER implements its
RPS Solar Carve-Out proposal.

VI.    Alternative Calculation

        If DOER decides to go forward with an RPS Solar Carve-Out, NSTAR Electric believes
that it would be possible to do so in a way that would substantially mitigate the rate impact on
customers. For instance, a reasonable program would have the following characteristics: (1) that
the carve-out program would begin in 2011; (2) that the projected impacts of the carve-out
program would assume that utility–owned solar generation would increase to 150 MW by 2017;
and (3) that the ACP would start at no more than $350 in 2011 and decrease biannually by $50.

        Using these assumptions, NSTAR Electric has prepared the following alternative table to
that found on page 9 of the DOER straw proposal:

       After purchasing renewable energy, or RECs, or both, “a distribution company may (a) Sell the energy to
       its basic service customers, and retain RECs for the purpose of meeting the applicable annual RPS
       requirements; (b) Sell the energy into the wholesale electricity spot market, and sell the purchased RECs
       through a competitive bid process; or (c) Select an alternative transactional approach, in consultation with
       DOER and subject to review and approval of the Department.” 220 CMR 17.06(1). If the distribution
       company sells both the energy and the RECs, “it shall: (a) Calculate the net cost of payments made under
       the long-term contracts against the proceeds obtained from the sale of energy and RECs; (b) Credit or
       charge all distribution customers the difference between the contract payments and proceeds through a
       uniform, fully-reconciling annual factor in distribution rates, subject to review and approval by the
       Department; and (c) Design a reconciliation process that allows the distribution company to recover all
       costs incurred under such contracts, subject to review and approval by the Department.” 220 CMR

       DOER Solar Carve-Out Proposal
       September 9, 2009
       Page 6 of 6

         Ownership     Community       S-RECs                               S-RECs
         and Federal      Solar          From                                From       S-REC      Total Solar     Solar
          Stimulus       Rebate         Other    Total All         Annual    Other      % From        REC          RPS
          Programs      Program        Sources   Programs          Growth   Sources      Other    Requirement    Minimum
           (MW)          (MW)           (MW)      (MW)              Rate    (MWh)       Sources     (MWh)        Standard
2009          0            15              0        15
2010          9            20              0        29              93%
2011         20            24              3        47              62%     3,416       0.007%       53,524      0.104%
2012         42            24              9        75              59%     10,249      0.020%       84,954      0.165%
2013         63            24             21        108             45%     23,915      0.047%      123,218      0.240%
2014         85            24             34        143             32%     38,719      0.075%      162,621      0.317%
2015         106           24             48        178             25%     54,662      0.106%      203,162      0.395%
2016         128           24             62        214             20%     70,606      0.137%      243,703      0.474%
2017         150           24             76        250             17%     86,549      0.168%      284,700      0.554%

              Thank you for the opportunity to comment.

                                                                    Very truly yours,

                                                                    Cheryl M. Kimball


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